Balancing Inventory With Customer Service

By Robert Malone

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A key link in the supply chain is the management of inventory and its vital replenishment. Manufacturers, distributors, wholesalers, and retailers all have a large stake in the process. Cooperative replenishment can lead to inventory reduction, sales growth, and reduced management and processing expenses.

"Replenishment is all about buying finished goods and reselling them," says David Flood, marketing director. "VMI is just another form of replenishment that happens to be done by the vendor instead of the company doing the buying."

Supply Chain Solutions has only been around for four years. Flood sees this as an advantage because the company has built its product using the latest thoughts and technologies.

The company started by focusing on the pharmaceutical market. Seven of the top 10 pharmaceutical wholesale distributors currently use the software. Supply Chain Solutions also has been a pioneer in selling VMI to the pharmaceutical manufacturing industry. Schein Pharmaceutical was first to purchase, and first to realize the benefits of VMI in a highly competitive marketplace.

"Schein is a generic drug manufacturer, remaking products off patents," Flood says. "It teamed up with a small chain of drug stores in Texas to use our Vendor Managed Inventory software to replenish inventory. Since then, we have captured a significant share of the generic market.

"We are now moving into the automotive and food markets, with manufacturers, distributors, and retailers in both VMI and replenishment applications," he says.

In addition to its SCORE product, Supply Chain Solutions offers SCORE Foresight, which can be an add-on to any of the implementations. SCORE Foresight grabs the data that underlies the SCORE systems, and allows it to be graphically represented for an executive information system.

"You can look at your customer's inventory that you are managing, or the sale of products you have introduced to the market, or you can track products," Flood explains. "Retailers use it to monitor which store is selling which products, and how they are grouped by region. The software takes all this data, and provides an aggregated picture of what is happening."

What makes the SCORE software different from other replenishment systems? While other systems basically figure out how much inventory you need and when you need it, SCORE looks at the whole purchasing process and factors in cost and profitability. SCORE users can buy at just the right frequency and in just the right amounts so that the cost of the ordering process is less than the profit the user makes selling its product.

The financial aspects of the purchasing process are important to Supply Chain Solutions, for a reason. "Replenishment systems have their greatest appeal in industries that are going through consolidation," says Flood. "The players are getting bigger and their margins are getting smaller. When using software to refine the purchasing process, the company will recover several points of margin. By saving money in terms of what it pays to purchase the product, the company can sell products at a few more points of margin. One or two points can make all the difference in the world."

Supply Chain Solutions users can set the service level they want to achieve based on the products they are selling, buying, or replenishing.

"For some product lines, the user may not need a high customer service level. But for others the user might want inventory always on hand. It's all about balancing inventory with customer service levels," Flood says.